UPDATE 2-Energy supply troubles show Europe vulnerable to imports

LONDON/MILAN, March 4 (Reuters) - UK gas prices hit a five-year high due to Norwegian supply troubles on Monday and Italy was cut off from Libyan gas after militia fighting, laying bare European energy markets’ vulnerability to increasingly vital foreign imports.

Oil and gas production in Europe’s main energy consuming nations has been declining, while demand is rising, making countries more and more dependent on foreign supplies.

In Britain, an unplanned cut in gas imports from Norway, its main foreign gas supplier, lifted prices to their highest in five years and a hydrocarbon leak at a North Sea platform shut the pipeline exporting Brent crude, one of four North Sea oils setting the benchmark price.

The shutdown forced Total to halt all oil and gas exports from its North Sea Alwyn Area, which comprises five fields: Alwyn North, Dunbar, Ellon, Grant and Nuggets.

Analysts expect price spikes to become increasingly commonplace as Britain depends more than ever on global energy markets as its domestic reserves dwindle.

“The influence of global supply-and-demand dynamics is expected to grow as the United Kingdom’s gas import requirement increases... price spikes will certainly remain a feature of the UK gas market going forward in light of declining domestic production,” said Claudia Mahn at IHS Global Insight.

Britain’s relative shortage of gas storage capacity, which provides a buffer against supply shocks, compared with other European countries will make domestic energy prices even more exposed to global shifts in supply and demand.

At the same time, net gas importer Italy lost supplies from Libya for a third day on Monday, after militia clashes over the weekend brought the North African country’s Mellitah gas complex to a halt.

Italy lost around 17.2 million cubic metres of gas supply due to the outage in Libya, a country that provides 10-15 percent of Italy’s gas, although production from the gas plant resumed on Monday afternoon.

Current low demand in Italy and long term commitments from Russia to provide gas left contracts trading in line with Friday’s levels, one broker said.

Short-term Brent crude prices traded at $110 per barrel on Monday and were supported by the shutdown of the UK Brent oil pipeline following a hydrocarbon leak in one of the legs of TAQA’s Cormorant Alpha platform.

The Buzzard oil field, the largest contributor to the Forties crude blend, has also been producing below capacity due to a technical problem and started a four-day maintenance shutdown on Friday.

The Brent outage widened the backwardation in Brent futures, with the front month finding strong support as opposed to later months. The spread between April and May futures widened to over $1 for the first time since early February.

Oil benchmarks are used to set prices of long-term gas contracts around the world.

Britain’s domestic oil and gas output has fallen around two thirds since 2000, increasing the $2.5 trillion economy’s dependence on imports and its vulnerability to events outside of its control. (Additional reporting by Oleg Vukmanovic, Dmitry Zhdannikov and Henning Gloystein; writing by Karolin Schaps; editing by Keiron Henderson and James Jukwey)